Welcome new reader!

Financial news I consider important, with my opinion, which is worth as much as you paid for it.
Please click HERE to read a synopsis of my view of the financial situation.

Tuesday, September 4, 2012

Why food prices have been rising

Most Gold Bugs state that food prices are on the rise due to the Federal Reserve bank printing more money.  While I can't dispute that it MAY have some effect, I really doubt it is the cause of food price rising.

The main action is Oil and USA Agriculture.

Oil prices are remaining high, due to Peak Oil and market demand that keeps rising.  USA is consume at 2001 levels, yet gas is much higher than 2001.   India, China, and other emerging countries have a steady increase in their needs, which is in accordance to my view back in 2008 (click).

Oil affects almost all goods prices, including food.

Other aspect is USA government mandate to convert a certain amount of corn into ethanol.  The levels are NOT adjustable due to food yields, but are steady increase in bushels each year.   By now, everyone should have heard how horrible a crop yield USA had in 2012, with some of the worst droughts in decades in the mid west.

Since America has finite land to generate food, farmers must choose crops to produce.  With Corn demand up, other crops may get less acreage.   This year, corn crops are estimated 10 billion bushels, with Ethanol consuming 45% of nations crops.  Corn is used to feed most livestock, causing meat to price increases.

Imagine if 45% of the demand for corn in a very low crop yield was to disappear.  Would corn prices go up or down?  The multiplier effect across livestock & other crop production would be impact-ful.

It is quite insane that Ethanol energy efficiency is still under great debate, but yet we mandate burning our food supply for fuel (click for studies) .  I currently believe Ethanol is a very bad idea, regardless of efficiency, for it pits our fuel prices, which are high, to force food prices higher. (Food vs Fuel)  We have turned farmland to produce food for us to eat in competition with the price of gas.

Ethanol would not be viable, if the government didn't subsidize.  So in effect your tax dollars are being put to use to increase your food costs.  Food prices to me are likely not linked to Federal Reserve printing compared to increase demand and low yields.
However Oil, Gold, and Silver may have more influence by monetary easing.

A very lengthy article is available with nice graphics at co.exist. (click)  one Image from there is below.
There is no investment point of this post, just the insanity of Government mandates to micro-manage the economy without consideration for corp yields and cost of feed it's citizens.

Just don't get sucked into food prices are up due to fed printing, it isn't that simple.

No comments:

Post a Comment